Are those Santa’s bells ringing in the background?
This time of year is historically the most wonderful time of year for the stock market.
After the worst Thanksgiving week since 1932, the market began a quick, sharp rally as the Fed agreed to pay . . . er . . . pave the way for Europe to deliver a legitimate plan.
There are plenty of vested interests riding on a Santa Claus rally this year.
Wall Street traders need St. Nick to come up big this year to garner better profits to reach their tougher bonus targets. And their bonuses — if they get them — will be smaller.
The Federal Reserve needs strong market performance to validate its maddening spending and lending spree.
Big pension plans need higher markets to improve depressed portfolios so they don’t need to put in even more funds into their plans next year.
The White House needs a rally just for the marts to end in positive territory, especially as the president gears up for what promises to be a contentious election. There hasn’t been a pre-presidential election year loser since 1939, the beginning of World War II.
That’s a whole lot of pull and some push that could be setting this year up for one of the strongest Santa Claus rallies in years, that is if Europe doesn’t deliver us a lump of coal, just like it did 1939. This isn’t a war, but it is certainly not a given that Europe will avert economic calamity.
As it stands now, the Dow Jones average is one European hiccup from being negative for the year. The S&P and Nasdaq are just above the flat line, but all are poised to make a mad dash into the green.
Historically, the markets have done quite well in December. In fact, since 1950, December is the best-performing month for the S&P and second for the other major indices.
Typically, a Santa Claus rally shows up right about now and runs through the first couple of days in January. Friday’s action is indicative of rally mode. Despite little good news out of Europe and a stronger dollar, it was off to the races with 186 point rise in the Dow.
For sure, some of this is due to Santa’s kind, giving spirit, hence Wall Street’s affectionate nickname for this move. The economic underpinnings in part come from the year-end money inflows from pension, retirement and endowment plans.
The market’s roller-coaster ride this year has confused even the most knowledgeable market followers into believing that the economy was either far better or far worse than it actually was at any point in time.
So it’s important to remember that, in the long run, markets reflect underlying economics; in the short run, underlying emotions and market motivations have the floor.